Great. Good afternoon ,everybody. Welcome to the UBS Media Conference. It’s a pleasure to have with us today, George Barrios, the CFO of WWE. Prior to that he was VP and Treasurer at New York Times Company, prior to that CFO of New England Media Group. Also holding positions as President and COO of Netsilicon. Prior to that at HBO, among other things. So I want to jump right into it because we are on a tight frame. With that, George?

George Barrios

Thanks, Brian. Before we go the Q&A, I just wanted to give a brief overview of WWE. Strategically, we are at our core, an IP company and have been very successful over our history in securing all our rights and maintaining those. So while we license those rights out to different windows, for the most part we own 100% of our IP. The core of that IP is 100,000 hour library, of which about 30,000 is today digitized and commercially available for exploitation.

Operationally, I think one of the things that makes us very interesting is the diversity of our revenue platforms. We play in just about every media platform that there is, whether it’s pay-per-view, live event, TV licensing, advertising, home entertainment, music, digital advertising, sponsorship and so on. The other thing that makes us interesting is the global nature of our business. Roughly, 25% of the business today comes outside of the U.S. and our major countries are outside of the U.S. Even though we are -- our television show is seen 140 countries, we generate economics in about 40 countries. Our top four, five countries would be the UK, Mexico, India, Australia. So some diversity, even within the geographic diversity.

The second item, I would like to mention operationally is also the nature of our business model. While our gross margins are -- in the current mix of revenues are in the mid to upper 40%, our variable margins are in the low to mid-70s. So we have the ability because we own all that IP and the costs are incurred once and then it’s exploited across all those platforms and geographies that I mentioned. Pretty high variable margins across most of our businesses. From a capital intensity standpoint, our maintenance CapEx is roughly 2% to 3% of revenue, which I would characterize as low to moderate in terms of capital intensity.

And the final element of our business model is, that historically we have been pretty aggressive in returning capital to shareholders. Our dividend policy today, if you looked at it, the dividend load of roughly $35 million, as a percentage of historical average free cash flow it sits at around 70%. So we continue to view that as an aggressive form of returning capital to shareholders. Before we turn it over to the interview I would like to queue up a video if I could.

Question-and-Answer Session

Unidentified Speaker

Excellent. So I wanted to jump from a very broad level, I wanted discuss the kind of the fundamental operating metrics that you look at in the business. Give us an update, we saw in the (inaudible) 80,000 attendees, 90,000 attendees, can you give us an update on the core metrics you look at for driving the business.

George Barrios

Sure. Some of those metrics which we report monthly by the way, that we look at pretty intently, is our live event attendance both in North America and overseas, or television ratings for the four to six hours that we will have on the air domestically at given time, which we also report. We also look at our rating globally. Given the difficulty sometimes and the accuracy of that data depending on the country. We don’t report that publically but internally we take a hard look at that. We always look at how we are trending in social media, primarily Facebook ad Twitter. Google Trends and Google Analytics also gives us a sense of how the brand is trending from a search perspective. We look at our own unique and page views on our own site as well as the streams that we do, we do about 75 million video streams on YouTube every month. So we track that.

If you step back and said holistically how is the brand doing? We feel really good about where we are. On average there’s nine million homes in the U.S. who are watching one of our programs, that what we consider our current fans in the United States, and that would be of RAW and SmackDown. Earlier in the year it would have included Superstars, NGN, and at the end of last year it also would have included NXT. But today, roughly about 9 million homes. We will do 2 million tickets or thereabout worldwide in 2011, that’s where we are in trailing 12 months. So we feel pretty good about that.

We currently have 40 million Facebook fans, and John Cena alone has between 7 million and 8 million. So both WWE and John Cena. So from a broad sports entertainment brand and also from an individual standpoint, those are kind of at the top of the Facebook leader list. And those numbers are obviously global. So feel really good about the health of the brand. I think if you look in the moment, quarter-to-quarter, somewhat of an ebb for us, we have been going through a pretty significant talent transition over the last 12 to 18 months as we had some talent that either retired or were through injury and so on, had begun to leave WWE. And is normal part of our business, that that means you are introducing new talent and you saw a lot of those new faces in actually the video. If you would have gone back, you know 12, 18 months ago, when we did a (inaudible) in this kind of setting, you would have seen a lot of different faces.

And we feel good about the new talent. But we know it always takes time for that new talent to blossom and connect with the fans. So in the short term the metrics don’t feel great. In the third quarter our North American attendance for examples, was down about between 5% and 6% year-over-year, rating somewhat flat. So in the short-term the trends are -- there are some headwinds on the trend, but long-term, if you really look at the macro perspective and look at our brand relative to others, we feel pretty good about where we sit.

Unidentified Speaker

So it dovetails into another area I want explore and that’s the talent transition and that kind of talent development program. Both from the talent perspective and then as you built fans around that talent, can you go into a little bit about how you manage that? Have you seen these ebbs and flows in the talent driver before and how do you work through that?

George Barrios

Yeah, so the answer. I will start with the last part of the question, first. Yeah, we have seen it for a long time. Even since the company has, or the notion of what we do has existed which is now 70 or 80 years. So that we hear anecdotally that it existed. If you tracked us a public company, you would see some of the data to support that. So it always goes on. There is an ebb and flow. We are talent driven business. Then to the first part of your question, which is how do you manage that, I always say there is a lot of science that goes into it. And science that we keep trying to perfect, you never get it perfect, we will try to continuously improve the science, but there is a big part of art to it as well.

From a science element, one of the more recent changes that we made is we brought one of our historically great talents, Triple H, Paul Levesque into the business. Paul’s still, from time to time on our TV show. From time to time might do one of our signature events but 80%, 90% of his time is now spent not in the ring or on TV, but actually in the office. And he is heading the entire talent development program. Which essentially is attracting new talent from a diverse source, both geographically and also from a background perspective. Developing that talent and the development is both in kind of the physical part of what our superstars do. And you saw from the screen, if you have been to an event there is a significant physical element to what gets done. But there is also an artistic element for the talent. And training them on how to connect with the camera and so on is a big part of what we do. And then finally retaining the folks that we think can make a difference.

From an infrastructure standpoint, what we have about 150 talent under contract, about 40 to 50 are what we, in our language call, main roster talent, which essentially means those are folks that you will see on TV. And then there is roughly about 100 talent that are in that development phase, and that development takes place at a central location in Florida. Something that we call FCW. That’s a large facility. We have local television contracts there, not that they have an economic impact to us, but we have those contracts so that our talent can actually see themselves on television and get used to the that connection with the camera. So that’s a lot of the science. But there is an art to it. And Vince himself has said, and he has got the most experience among anyone on the management team on seeing these ebb and flows, saying that even every time you thought somebody was a star, there is a countless times when that person hasn’t made it. He may have been solid but not have been a star.

And then there is a lot of other people, and I will mention a couple of names, that he said, I thought they were solid but for whatever reason -- and you can't, this is the art part so you can't predict -- the audience connected with them. And two of our actually biggest stars were people that Vince said, I never would have thought that they would have made it. One was Stone Cold Steve Austin, who had been a talent for a quite a few years with WWE. Had gone through his character, gone through a variety of iterations. And one day he came back as Stone Cold Steve Austin as opposed to one of his previous permutations, and that connected with the fans and he became one of our biggest stars.

The Rock was the same way. Obviously, probably people will consider him WWE’s historic signature talents, probably between him and the Hall. But for a long time he was kind of what we would call a middle of the cart guy. He was solid good, Vince thought he was a nice player, didn’t really see him becoming what he became. And part of that is we like to think some of what we brought to the table and helping them grow, and part of them was what they invested to growth and then part of it was the part that you can't really quantify which is connecting with the audience. But at the end of the day we are in the talent development business. So we spend a lot of time, energy and money making sure that we have that pipeline.

Unidentified Speaker

As we think about the magnitude of investment and the returns around the WWE network. Can you get into that a bit and then I want to dovetail into some international questions and then (inaudible).

George Barrios

Sure. So just put the network in context. I mean I mentioned at the core, at the beginning that the core of what we do is create and exploit IP. And about 2.5, 3 years ago one of the -- as we stared planning ahead doing our annual three year planning process, one of the things we talked about was that the next tranche of the potential growth from the company -- for the company was going to come from deeper exploitation of that core asset. That 100,000 hour library as well as the ability from an infrastructure standpoint to be able to produce new original content. So that became kind of a core strategic tenet for us.

As we moved forward from that, there were a variety of options on how to execute that strategy, and one of them was the network. Because, again, at its core that would be the distribution mechanism to support the exploitation of that library as well as support the creation of new content. So that’s where the network fits strategically for WWE. It’s kind of a natural extension of that development and exploitation of IP.

As far as talking about the investment and so on, at this point we can’t get into too much detail on that. Two points that I will bring, that are, one directly related, one tangentially related on investment, is on our third quarter call we did talk about the initiation of startup cost for the WWE network, that we anticipate sometime in 2012. And we said we have $4 million to $6 million of OpEx in the fourth quarter and roughly $15 million to $20 million of CapEx. And again there is a timing issue there, not all of it may fall in the fourth or a little bit may get accelerated in the fourth. But to put scale on dollars that would be spent in the relative short-term.

The other time I will touch on, and this is the one that’s tangentially related, we have said for some time that the company would have to make an investment to support that next wave of content, both from an exploitation standpoint and also from the creation of new content. We talked about a media center as far back as 2008. The last public statement from a dollar standpoint we have made is that -- was $65 million to $75 million. I am not conforming that at this point or not, because when we are ready to announce that will put finer numbers on that. But that is what's out there in the public domain.

What we have also said about that media center is that, in one way or another, it’s a strategic imperative for us to make that investment. The timing was up in question, but that was a strategic imperative. The reason I say that there is an overlap is because to support a network there is going to be some level of infrastructure. Again, today I can't talk about, was that the full $65 million, is it more than that, is it less than that. But I think those are things that are out there in the public domain that are all related to the issue of the network.

Unidentified Speaker

And then in terms of, I guess M&A, is a viable candidate or account consideration for that also?

George Barrios

Yeah, I think when we look at our balance sheet debt capacity, capital structure, we are at large. Like everyone, we are looking for growth opportunities in organic growth, new businesses and M&A falls into that analysis as well. So we will continue to look at that. I mean we publically said that we think there probably two general opportunities, if we were to do a transaction. One would be for another IP company that also monetizes its content, both with geographic diversity as well as platform diversity, but they’re core IP. And in some cases there may be some vertical integration. We use a lot of vendors to put on our shows, for example. So that you could see yourself doing something there and still sticking to the core competency of what you do.

But that’s the way we are looking at it. We have said -- I have said, I don’t view M&A as a strategic imperative for the company. I just think if the right deal came along that had good assets and that the price of those assets was something we thought we could get a return on then we would consider it.

Unidentified Speaker

Okay. And if there is any questions out there, I will field them, if not I wanted to drill down a bit on your dividend policy. And you recently revised that and the rationale behind that.

George Barrios

Sure. Back in early 2008, about two or three months actually before I joined WWE, the company instituted a new dividend policy that had two elements to it. One was to significantly raise the dividend at that point, about 50% for public shareholders. And two, to create a split dividend where the majority shareholder, which is Vince McMahon, would take a lower dividend payout then the public shareholders. So Vince and his family were at $0.24 a share, public shareholders were at $0.36. In total the dividend load was about $80 million. If you looked at historical free cash flow at that point in time, that dividend load would have been roughly 160% of historical free cash flow.

Now there was a significant balance sheet to support it. And the thinking of the company at that time, as they disclosed in there public statements, was that they thought that they could grow into the dividend over time and that they had the balance sheet to support it in the short run. I think a lot of things changed subsequent to that. Some macro, obviously the economy went through and continued to go through a fairly tumultuous transformation. And then there were some short-term operational issues for us. We talked about the talent transition. So long story short, earlier this year we adjusted the dividend. And as I mentioned before, if you looked at historical free cash flow and compare the current dividend load to historical free cash flow would be at around 70%. Which if you looked at the Russell 2000 dividend payers, range from as low as 10% to I think the high is in the 65% to 70% range, the average is roughly 35% for dividend payers. So we still think it’s a fairly aggressive, conservative, however, you want to characterize it, but on the high end of dividend payers and that was our thinking.

Unidentified Speaker

Okay. All right. At the -- I wanted to drill down a little bit on the competitive environment. How serious is the challenge you see, things like MMA and UFC, in terms of your business.

George Barrios

When we look at competition writ large, it’s really anything that takes eyeballs from us, so it’s a fairly broad competitive set. And I think if you are in entertainment that is the way you have to look at it. I think we get a lot of questions about MMA, as I often say, it’s because I think people see that the both are performers are wearing some form of spandex, so they think there must be some natural competition there. We don’t view it that way. We tend to -- we take the broader view, which is we are a pop culture entertainment brand, and anything that takes attention away from us is something that gets our attention. We don’t really view UFC or MMA more broadly as a specific competitor, but you know they are part of entertainment landscape and they take eyeballs away from -- or they soak up eyeballs, so we obviously have to be aware of them. But we don’t view them as specific competitor. And if you looked at the data, the data kind of backs that off. They have a different demographic. There is a big overlap between UFC or MMA and boxing. If you go to one of their events you see it more qualitatively versus one of our events. I said -- I always say, if you go to one of our events, it looks a lot more like the demographic of Disney on ice. There is a lot of parents and a lot of kids there. If you go to a UFC, that’s not what they are, not a lot of kids there. So it’s a just a different environment. So I don’t want to diminish them as a competitor but I also don’t -- we don’t anyway elevate them as a specific competitor.

Unidentified Speaker

And then real quickly, the status of your TV agreements. NXT, Superstars?

George Barrios

Yeah. So what we have been public, RAW which is our franchise program, is under a multiyear agreement that expires in 2014, and that what we are public there. When we move Syfy -- I mean when we move SmackDown over to Syfy, all we announced was that it was a multiyear agreement so we didn’t put a timetable. NXT and Superstars which are pretty big economic engines for the company and we talked about that in the third quarter call, that part of the year-over-year decline in EBITDA, significant part of the year-over-year decline in EBITDA is attributable to those two shows being of the air. Because there’s very limited cost for us to create that content and it gets exploited at a -- because it attracts a good audience, it was that they were both number one shows on their respective networks. They have significant value.

However, as I have mentioned on the call, is we have been working through the network and what that model looks, we strategically decided to hold back placing those shows on other networks. Again, a short term economic kit, but we think long-term and strategically it made sense to do that. So nothing to announce as to when they might be on the air again, or where they would be, but just kind of accepting the fact that that is part of some of the short-term headwinds that we have.

Unidentified Speaker

We saw some international stats in the real, can you give us some sense for how far you are along that strategy? Are you in the second inning, fifth inning, seventh inning?

George Barrios

Well, I like to think we are in the second inning. I mean the company has done an amazing job to use that analogy, growing its international business over the last 10-15 years. In fact, prior to 2008, the five years prior to that or so, it had grown at about an 18% CAGR. Economy obviously threw that -- created some headwinds for everyone, but for us specifically. And just to talk a little bit about the international business. I mentioned it’s about a quarter of the company's revenues. About two-thirds of that is centered in EMEA. So which as everyone knows here, has been one of the areas hit hardest by the global economic challenges that people have seen. Which in turn has affected us kind of disproportionately.

I mentioned that Mexico and India are among our top five countries and we feel real good about the long term opportunity in Latin America and also in India, given that most of our revenue -- even though it’s one of the top five countries for us outside the U.S., most of the revenue is derived from or television contract, the consumer products environment there is a lot more difficult, from both strategically and also from a logistical standpoint. And some of our key partners, Mattel and THQ as examples, even though they both see India as a long term opportunity, in the short-term you don’t see the same sort of consumer products penetration.

So we feel good about our international growth. We do need to keep saying I am not sure we need the economy to be a tailwind, but it sure would help for it not to be a headwind.

Unidentified Speaker

And in terms of -- we certainly, in the internet space and the video game space that we cover, we have seen a convergence of media. People want to consume their content across devices anytime they want. They also want to accrue experience points, if you are playing something on a cellphone you’re able to follow that forward into your console game. How do you see your digital media initiatives evolving, can you give us -- you mentioned some YouTube stats but is that a mature rate or do you see, five years down the road, the majority of your content is being consumer via apps and less so in events.

George Barrios

Well, it depends on how you would (stake) the majority of the content. From an usage standpoint, think you could see a majority of the content, from an economic standpoint, I don’t think five years from now you are going to see the majority of the economics for us or for any content player, for most kind of traditional content players, be digital. Video games, you know, each one -- we tend to look at digital because it’s a big term, and we tend to apply it to the different platforms. I think it’s got different manifestations in video games versus home entertainment versus traditional video licensing. And again whether it’s subscription based, ad supported or licensed. So for us it’s a bit part of the strategy. It’s got different -- I think it’s going to play out differently in those different places. For example, I think that what's happening on the video game side is a little bit tougher to manage through then it is on the subscription video side. On the later I think it’s incremental opportunity for content providers. Even though the issue of windowing an exclusivity is something we are all trying to figure out and optimize. I think on the video game side, I think it’s less clear, how the economics shake out. I think the console business is fundamentally different then the app gaming business or the multiplayer online business. The underlying economics. What that means for those publishers like THQ, Electronic Arts as well as for the IP holders, I think, time will tell.

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